Franchising 101: The 8 Pitfalls to Avoid When Buying a Franchise

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The Do's and Dont's of buying a franchise

To avoid serious implications further down the line, make sure to avoid these eight pitfalls when buying a franchise.

Buying a franchise is a huge commitment. Youre investing a lot, both financially and emotionally, and a contract should only be entered in to after thorough consideration and research. Failing to do your due diligence may lead to buying a franchise that is poor value for money, or worse, has a business model that doesnt meet your expectations.

As franchises have a tried and tested business model, it is often thought that starting your own franchise means youll avoid the pitfalls that come with starting an independent business. While this is true to an extent, a lot can still go wrong. So, to make sure your journey to franchise ownership runs smoothly and there are no hiccups along the way, we have complied the top ten mistakes to avoid when buying a franchise. Remember these and your franchising experience should be plain sailing!

The top 8 pitfalls to avoid when buying a franchise for the first time

1. Not doing enough research

In this digital age, its possible to find out a lot of information about your chosen franchise before you become a franchisee. From the franchises website, youll be able to gather a wealth of information including whats contained in the franchise package and how much investment is required.

However, your research needs to go deeper than just whats available from the franchisor. You also need to validate projected profit potential provided by the franchisor and analyse the market opportunity.

2. Not reading the franchise agreement carefully

Due to the excitement of buying a franchise some franchisees might try to speed up the process and not read the whole of their franchise contracts. Also, some franchisees might feel intimidated by their long length and complexity and therefore skim certain sections.

You must overcome this barrier and thoroughly assess the obligations, limitations and fees detailed in the agreement. Its crucial to never agree to a contract without having a full understanding of whats expected of you, both professionally and financially.

During your assessment of the franchise contract, make a list of parts that you dont understand or which require more information. You can then pose these questions and concerns to the franchisor, your accountant and your franchise solicitor. If you do this- youre off to a great start and can be confident you know what youre getting yourself into!

3. Avoid seeking professional advice

As stated above, its important to consult your accountant and solicitor as early in the franchise purchasing process as possible. It's also recommended that you hire professionals that specialise in franchising.

If youre unsure of where to find experts to consult, theres a list of affiliated professionals on the British Franchise Association website.

4. Not speaking to existing franchisees

Its easy to get carried away with the positive and enthusiastic pitch that the franchisor gives to persuade you to invest in their franchise. But whats it really like? You should ask the franchisor for a list of existing franchisees and ask them what its like to be part of the franchise. Theyre more likely to give you an honest review of the performance of the franchisor and the franchise.

By speaking to existing franchisees, you can getting a true sense of what it would be like to run your own franchise unit. This means youre less likely to have any nasty surprises or disappointment further down the line.

Watch out for franchisors that only provide the names of a few franchisees, as this could suggest that the others arent performing that well.

To get an idea of what questions to ask, check out another one of our articles here.

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5. Underestimating the costs

The biggest reason for franchisees failing to make their business a success is lack of cash flow. Being undercapitalised can ruin a franchise that may even look successful from the outside. It's important to remember during the budgeting process that purchasing a franchise costs more than just the franchise fee and ongoing costs.

Many expenses occur during the start-up phase for which you also need to budget. Working capital is required to cover business-related costs until your franchise is in a position to fund itself. These expenses can include equipment costs, insurance, professional fees and day-to-day operating costs.

But dont worry- franchise costs are actually much simpler than you think. If you make accurate financial projections theres no reason why you shouldnt see success with franchising. Have a look at a another article in our franchising 101 series that explains all you need to know about franchise start up costs in the UK.

6. Rushing into it without being ready

Excitement, nerves, enthusiasm: when you're about to start your own business, you're likely to be on a rollercoaster of emotions- we get it. But don't let your feelings cloud your judgement or lead you to rush into deciding before you're ready to do so.

Only look into buying a franchise when you are mentally and financially ready and have researched your options extensively.

7. Get your timings wrong

There are lots of different elements that need to come together when youre buying a franchise and getting the timings right can feel frustrating and stressful at times. For example, its best practice to try and get your franchise agreement and the lease on your premises to start at about the same time. But its not always easy.

If you cant coincide these two dates, you may be left in a situation where you have to pay rent for a few of months before you can start trading. Ideally, you dont want to start your new franchise without paying out more money than you already have to. Speaking to the franchisor, other franchisees and a franchise lawyer should help you get your timings bang on.

8. Focusing on the latest big thing

One of the biggest mistakes to avoid when starting a franchise is to focus on a business that is fashionable, rather than buying into a franchise because it matches what youre interested in, your skill or your available budget.

For example, with increasing demand for quality geriatric care, buying into franchises within this sector is becoming more popular. One of the key requirements for buying into a senior care franchise, such as Home Instead, is that you have a genuine passion about providing care for the elderly in your local community.

If that passion is lacking, then its worthwhile looking at another franchise that youll enjoy and will be just as profitable. By choosing a franchise that you are passionate about youre setting yourself up for many years of career satisfaction and enjoyment.

Avoid these pitfalls when buying a franchise

You should now be in a good position when buying a franchise as you know what mistakes to look out for. Its a good idea to also refer to our official franchise start-up checklist to make sure you dont miss any important stages out. Remember, franchising is a less risky route to business ownership than starting an independent start up, but be careful not to let any silly mistakes in the initial stages stop you from reaping the many benefits it has to offer.

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